Where is the middle ground on IR?

When it comes to debate on industrial relations, all sides wish to be in the middle, to be flexible and to be productive.

The policy pendulum is said to swing from the employers to the employees, and in the middle is where all sides assume their own policy rests.

Julia Gillard, when introducing the Fair Work Act (and the use of 'fair' itself implies this 'balance'), said: "The new system will balance the needs of employees and employers."

Tony Abbott a couple weeks ago said of the current system: "What we're looking at is careful, cautious, responsible change that will bring the workplace relations pendulum back to the centre where it should always be."

But where is the centre?

If you were to plot the history of Industrial Relations Law and policy in this country since the 1980s, it would show a shift from power of workers and unions to that of employers.

On a scale of minus 1 to 1, with minus 1 being union power and 1 being employer power, the Keating Enterprise Bargaining reforms of the 1993 Industrial Relations Act took the position from around –0.6 to around –0.2. Peter Reith's Workplace Relation's Act of 1996 put it to around 0.2, Work Choices in 2005 took it to about 0.7, and the Fair Work Act in 2010 took it back to around 0.2 or 0.1.

Some (such as Peter Reith) might argue that the Fair Work Act goes back past the Keating reforms, but given aspects such as voluntary unionism remain, I'd argue such a position is based more on politics than law.

So when you hear Tony Abbott talk about it being time to bring the pendulum back to the middle, the middle remains a long way from a hypothetical balance of worker and employer power.

This tactic is common to both parties - accuse the other side of being extreme, and suggest your own position is thus neutral. What such a tactic engenders, however, is a push to move to more extreme positions - thus forcing the 'middle' ever further to the right or left of the political spectrum. In essence, the 'middle' becomes flexible.

We can see evidence of this aspect most prominently in the United States. The blog VoteView analysed the votes by the members of the House of Representative to see how the parties had changed their ideological stance. They found that since 1975 the Republican Party has shifted significantly to a more conservative position, while the Democrats in that time had only marginally drifted towards a liberal (small 'L') position (and mostly due to the decline in power of the so-called 'Southern Democrats').

In 1975, the 'middle' on this scale was around –0.05; by 2011, it had shifted to 0.15.

It is impossible to create such a graph for Australian politics, given both parties vote in blocs, but if you think of it in terms of IR, you can get a sense of how talk of the 'middle' is disingenuous.

This also has issues when it comes to journalists suggesting they don't take sides, but are balanced. When the middle drifts one way, that means their reporting also drifts.

On IR, this drift is even more pronounced when you consider that the only two national newspapers in this country - the Australian Financial Review and The Australian - both advocate editorially (and in their reportage) pro-employer IR policy, and are thus themselves pushing away from any hypothetical 'middle' position.

The issue of IR has heated up of late mostly due to the Liberal Party now feeling that their position in the polls is so strong that they can talk about the issue that for them still contains the electoral stench of WorkChoices, and because they believe they can use HSU scandals to taint all unions.

It has led to claims that have some strength of rhetoric, but which sadly lack the power of evidence.

In recent years, it's hard not to feel as if our industrial relations system has been like a pendulum, swinging from one approach to another.

And that:

The Government's review of the Fair Work Act [to be released soon] is an opportunity to move the pendulum back to a more appropriate balance.

Tony Abbott quickly took up these comments to suggest the Fair Work Act and WorkChoices were polar opposites, and thus the Liberal Party's IR policy (when they actually come up with one) will be 'balanced'. To support this he said:

Now, I've made it very clear that we have a flexibility problem, we have a militancy problem, and we have a productivity problem...

Mention of a militancy problem would have you thinking we're in some 1980s Thatcherite UK where mining unions are striking across the nation. Clearly they are not. Pattern bargaining, secondary bans, boycotts and solidarity strikes remain outlawed under the Fair Work Act, and a cursory glance at the number of days lost to industrial disputes over the past 27 years shows if the pendulum is swinging, it is not swinging back to the 1980s, but to what I guess now the Liberal Party suggests are the dark days of 2005. (The latest Industrial Disputes figures come out next week.)

Similarly, you only need to see the reaction of unions to the news to the sensible and necessary decision to bring in foreign workers under an Enterprise Migration Agreement to work on the Roy Hill Iron Ore project. There is "anger", but no talk of strikes that you would likely have heard in the 1970s and 1980s.

On this issue of wages, it was not surprising the Labour Price Index figures did not get much coverage - after all, they failed to show any evidence of the long predicated Fair Work Act wages breakout. The 0.8 per cent increase in the March quarter was down from 0.9 per cent in the previous quarter.

But as we know, overall figures can hide what is happening in specific industries, so how was the mining sector fairing?

There was a big increase in the March quarter, but the trend has remained steady since 2005. And if we compare the mining sector with the all industries, what we see is that in annual terms the growth of mining wage is above that of other industries at a level similar to that of 2004-05.

As well as seeking the middle position, what many (such as Tony Abbott, above) try to do is frame the IR debate as being one of productivity. Judith Sloan (paywalled) in The Australian recently bemoaned:

Documents released under Freedom of Information revealed the government's reluctance to accept the department's advice to include productivity in the [Fair Work Act] review. In response, the minister has pointed to the fact that the objects of the act cover 'economic goals such as economic growth, productivity and economic prosperity'.

She also noted that while those in favour of the Fair Work Act can point to low unemployment, low inflation, and low level of industrial disputes, so can those who (like her) believe WorkChoices was a better policy.

What proponents of either policy should be more willing to admit is that both can point as well to low productivity growth.

Productivity is notoriously difficult to measure. The standard "Labour Productivity" of GDP per hour worked is a very rough and ready measure, whereas the measure of "Multi-Factor Productivity" is more favoured as it is (to use the description given it by Treasurer Secretary Martin Parkinson) "how clever we are at combining labour, capital, resources and ideas".

The ABS has attempted to measure this at an industry level, and what it displays for the mining sector is quite stunning, especially when you consider our economy's growth in the 2000s has been driven by the mining sector:

For the past decade, multi-factor productivity in mining has been declining. A very similar path is also observed in the utilities sectors of 'electricity, gas, water and waste services'.

Given that from 2000 to 2007 there was a strong decline in industrial disputes and also an increase in 'flexible' workplace arrangements, such a decline in productivity clearly has little to do with industrial relations policy.

In 2009, when Parliament conducted an inquiry into raising the level of productivity growth in the Australian economy, economist John Quiggin (who disputes the notion of a 1990s productivity surge) noted in his submission:

The major microeconomic reforms of the Howard government, including the GST, privatisation of Telstra and other Government Business Enterprises, the replacement of the CES by the Job Network and a series of labour market reforms culminating in WorkChoices, all took effect during this period.

Thus, the best those who argue such reforms improve productivity can say is that the policies reduced the decline in productivity growth. Hardly the most winning of arguments.

In fact, the decline has a lot to do with the mining boom - rising minerals prices meant low-productive mines were profitable, and thus the extraction of minerals from those mines actually assisted in lowering the sector's and the economy's productivity.

The Productivity Commission in its submission to the parliamentary inquiry suggested the reasons for the decline in Australia's productivity since 2000 were due to:

exhaustion of quality reserves in some existing mines and oil and gas fields

drought effects on agricultural and utilities productivity

a wave of investments in utilities [ie electricity, gas, water and waste services] after the uptake of excess capacity from earlier investments and the productivity reforms of the 1990s

And here's the kicker: the commission suggested that these three reasons:

... contributed about 70 per cent of the productivity growth slowdown since 2003-04, relative to the 1998-99 to 2003-04 productivity cycle.

Seventy per cent of the decline in productivity growth is due to 'quality' (i.e. high productive mines) being exhausted, drought, and an increase in investment, which by its very nature reduces productivity in the short-term while leading to increase in productivity in the long-term.

For all the talk on both side of politics about not being complacent about productivity, if the decline in productivity since 2003 was 70 per cent less than what it was, 'productivity' would not be the buzz word it currently is in political circles.

What is curious about this decline in productivity from 2003-04 is that it hasn't affected national income - in fact, quite the opposite:

Since the mining boom hit in 2003, Gross National Income (what used to be known as Gross National Product) has for the first time outpaced GDP - meaning the growth of economic production within Australia has fallen behind the growth of the income of Australians (whether earned in Australia or overseas).

Firms during this period, perhaps not coincidentally, have also increased their share of profits:

Little wonder that the Productivity Commission would note in its submission:

This adjustment neatly underscores that businesses need to pursue opportunities to maximise profits, not target productivity as an end in itself.

This is worth remembering when listening to chairmen of mining companies talking about productivity...

The debate on industrial relations is likely to continue right up till the next election (and beyond). Those on both sides will talk about balance. That balance will be in the eye of the beholder.

To defend their position, most will also talk of productivity and do so by suggesting the link between more flexible workplace agreements and productivity is axiomatic - doing so nicely avoids the need to actually prove the link.

The decision to bring in foreign workers for the Roy Hill Iron Ore project is a microcosm of our productivity problem, and it has nothing to do with industrial relations. The reason these workers are coming in is that the work is in an area many Australians neither wish to move to due to the costs (economic and social) of living in those areas, nor fly in/fly out of due to the disruption it creates for families.

But most importantly, the foreign workers are being brought in to work on the Roy Hill project because there is a shortage of workers with the skills to work in that mine. You can't just send the unemployed off to the mines (as Tony Abbott suggested back in 2010).

The Productivity Commission suggested three aspects needed to be addressed to improve productivity:

incentives - the external pressures and disciplines on organisations to perform well

flexibility - the ability to make changes to respond effectively to market pressures

capabilities - the human and knowledge capital, as well as infrastructure and institutions, that are needed to make necessary changes

Economic policy by both the ALP and LNP of the 1990s and 2000s was all about increasing 'incentives' through competition policy and 'flexibility' through workplace relations. Clearly the productivity growth from these low-hanging fruit areas has long since washed out.

When talk comes to productivity, we shouldn't be focussing on the pendulum of workers and employers, where talk of productivity gets confused with business's profits and costs. We should instead be worrying about the imbalance of attention during the past 16 years to 'incentives' and 'flexibility' over that of 'capabilities'.

Greg Jericho writes weekly for The Drum. His blog can be found here. View his full profile here.